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​Blog Post #36:  The End is Not the End

12/28/2016

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At last we were finished with all the legal wrangling. We could be proud of ourselves and our partners for hanging in there and garnering settlements against all odds.  Stan and I spent the rest of 2013 working on spreadsheets and methods for helping the partners who owed the most money to get out of the partnership by redistributing their shares among partners who would buy them.  We went from 24 partners to 10 partners by the end of the year, and we personally owed so much money that our percentage in the remaining partnership dropped by about half.  But, thanks be to God, we were finally finished.
 
We gradually learned that landowners who followed us in negotiations with the state did not fare as well as we did. This broke our hearts.  We hoped that as the state and/or the courts continued to hear the stories of these folks that they would ease up.  We hoped our unrelenting bulldog methods would make the state back off.  I’m very sorry to report that doesn’t seem to be the case, and I can only say that I don’t have anything good to say about the people who initiated this horror on the citizens of Colorado, those who perpetuated it, or those who lacked the courage to fix it.
 
But, as more people related their stories, we learned that others shared our suspicions about a “good old boys’ network” instigating this mess.  In an article entitled “Conservation Easements: Colorado’s ‘Legalized’ Theft,’” The US Observer reported  “To coincide with their destructive strategy, in 2003, the tax credit brokers reportedly developed a union with well-known appraiser, Mark Weston, who in turn enlisted appraisers, Peter Sartucci, Tim Walter, and Kevin McCarty, for the alleged, explicit purpose to invalidate appraisals and to allegedly slander appraisers John Stroh and Bill Millenski (among other appraisers outside of their group). In fact, a public records request revealed an email, dated July 29, 2004, from Janish Wishman, attorney for Great Outdoors Colorado (GOCO), where Tim Walter responded, ‘I doubt we can overcome the Caldwell and Brown and Stroh water value report but will try.’”  Remember, Tim Walter and Peter Sartucci were the appraisers that the IRS “hired” to review our land.
 
An article in The Journal-Advocate by Jeff Rice on 1/19/2016 describes how the Gentzes pursued their own legal action against Mark Weston. “Gentzes launch second legal acion.”
 
“Last week the Gentzes filed a lawsuit in the 13th Judicial District Court against Mark Weston, a land appraiser and one-time member of the state's Conservation Easement Oversight Commission. The Gentzes claim that Weston essentially double-crossed them, charging them for advice on how to file for conservation easements on some of their land at the northwest edge of Sterling, and later voting to reject the appraisals and retroactively deny the tax credits they'd claimed for those easements.
 
The Gentzes are already fighting with the Colorado Department of Revenue over more than $700,000 in denied tax credits, penalties, and interest the state says the couple owes. The state rejected an appraisal of the Gentzes' land after the couple had claimed tax credits in 2006 and 2007 for enrolling some of their land in Colorado's Conservation Easement program. Now the Gentzes are also saying Weston is partly responsible for that.”
 
 
Stan continue to assist Land Owner’s United, which formed Landowner’s United Advocacy Foundation as the group that sued the state in March of 2016, as described in Blog #2, and the case is still pending in federal court.  (See Colorado Landowners Sue State Over Conservation Easement Program, in the Denver Post, 3/28/2016.)  Please, dear reader, keep these landowners in your prayers as this case creeps forward at glacial speed.
 
If you want to look up the case, it is Case 1:16-cv-00603 in the United States District Court for the District of Colorado.  It’s an ambitious case and you will see that the LUAF, as plaintiff, names the following as defendants:


  1. State of Colorado;
  2. Barbara Brohl, individually and in her official capacity as Executive Director of the Colorado Department of Revenue;
  3. Marcia Waters, individually and in her official capacity as the Director of the Colorado Department of Real Estate;
  4. Mark Weston, individually and in his official capacity as Commissioner (appraiser) of the Colorado Conservation Easement Oversight Commission;
  5. Colorado Department of Revenue;
  6. Division of Real Estate of the Colorado Department of Regulatory Agencies;
  7. Board of Real Estate Appraisers;
  8. Colorado Department of Regulatory Agencies; and the
  9. Colorado Conservation Easement Oversignt Commission of the Colorado Department of Regulatory Agencies.
 
Articles for Your Perusal
 
The press, for the most part, seems to have finally come around to understand that this wasn’t a “Rich get Richer” scheme as originally reported, rather illegal persecution, legalized theft, fraudulent fleecing, and a violation of our constitutional rights. A series of scathing articles have ensued, although some, like Migoya’s below, still get things wrong.
 
“Conservation Easements: Colorado’s Legalized Theft -- Governor Hickenlooper’s Administration Fraudulently Fleecing Landowners” by Lorne Dey & Ron Lee,
Investigative Reporters, The US Observer. (Mentioned above.)
 
“Easement program failure penalize taxpayers, landowners” by David Migoya, in The Denver Post, 12/19/2014. While Migoya rightly underscores the failures of the program, he incorrectly says, “Not every credit buyer had to pay. Some wealthy landowners and developers, like Mann’s group, covered the tab because tax credits are sold with a promise of indemnity. If something goes wrong, the seller agrees to pay up.”  Of course, if you’ve been following this blog carefully, you’ll realize that we were not a wealthy group, and we did not “cover the tab” or “pay up.”  We negotiated a settlement with the state in which we insisted that the state leave the tax credits of the transferees [tax credit buyers] intact, so it was stipulated in our settlement – we didn’t whip out our check books to cover it. Additionally, our settlement with the state was mostly paid by the malpractice proceeds, not by wealthy partners.
 
“Local Couple Joins Statewide Group in Tax Credit Fight.”  “LAMAR — A Sterling couple is considering expanding their quest for justice in the Colorado Conservation Easement Program debacle. Alan and Julie Gentz met Saturday with members of the newly-formed Landowners United Advocacy Foundation to hear about a plan to sue Colorado in federal court to recover damages suffered from what they see as unfair prosecution for alleged misdeeds they never committed.” By Jeff Rice, Journal-Advocate, 11/9/2015.
 
“LUAF offers salvation for embattled landowners” an Op Ed by Jeff Rice, Journal-Advocate columnist, posted 11/9/2015. (The link to this article is no longer available. Download .pdf below.)
​
“Lawmakers lacked courage to do right.” By Jeff Rice, Journal Advocate, 3/28/2016. “The hypocrisy in the Colorado Statehouse reached epic proportions this session when lawmakers made it clear they want nothing to do with making whole the land owners who have been swindled and persecuted by the state in the conservation easement debacle.”

Rice doesn’t mince words in this article – of all the links I have provided in 36 blog posts, I think the comment above is the most quintessential “wrap up” of where we are right now, along with all the landowners in Colorado who have not yet received justice.

Sidenote:  Scammer and Abusers

We sure got tired of hearing law-abiding landowners being called scammers, and accused of “abusing” the C.E. program.  We kept asking someone – anyone – to actually point to anyone who had really scammed the system. Where are the names?  Where are the convictions? Who are they?  And there were no names, no convictions. 
Unfortunately, one scam (and resulting conviction) did turn up, and I wouldn’t be a good reporter if I didn’t include this.  To my knowledge, it’s the only actual case of fraud and abuse.  Conservation-easement scammer gets 83 years in Colorado prison, by David Migoya, The Denver Post, 4/7/2016.

The End of the Story

So, thus ends my narrative, although I will continue to post about the progress of the LUAF case and anything else that comes up related to this bruised conservation easement program in Colorado.  I don’t think it’s the end of the “story.”  I believe in the “butterfly effect,” and that all these things that have been set in motion will continue to play out in individual stories – I hope we all get to hear more about what happens, and I hope it is good.
Please continue to check in, and by all means let me know if there is something you want to share or want me to investigate.  If you have any questions about anything I’ve written, please let me know.  And may you receive some kind of extra special blessing for hanging in there and reading every last word! ©Sharon Cairns Mann

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Blog Post #35:  Grumpy Progress

12/27/2016

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PicturePhoto credit gumpycats.com.
In the previous post, I wrote that we had settled our 14 cases with the IRS and14 with the State.  The only thing unresolved after January 2013 was the malpractice case. 
 
I’m not allowed to say anything about our malpractice case except we reached a “mutually satisfactory settlement, the terms of which are confidential.” We were scheduled for a jury trial in April of 2013. Many of our partners were gearing up for trips to Colorado to be in attendance. In March – only about two to three weeks before the trial -- we settled the case against Todd and Wishful Thinking.  
 
We settled.  But I think I can also say I was bitterly disappointed by the settlement (contrary to the “mutually satisfactory” language in the settlement agreement) and the attorneys at RWO had to take turns talking me into signing it.  They assured me that the other side was also bitterly disappointed, thus making a perfect settlement. But, after a lot of prayer, I came to a place of peace.  Here’s what I posted on FB at the time: Thank you to all who prayed for us as we wrestled with difficult decisions about the legal quagmire we were in.  I have an abundance of gratitude and peace about the decision we reached, which was to settle the case and not go to trial. I’m very confident that the decision we made and the resulting peace would not have happened without your prayers.  All I’m allowed to say about the case is that we reached a “mutually satisfactory settlement, the terms of which are confidential.”  The issues will not go away immediately and it is not the end of the road for the business – we have a lot to sort out and it may take years.  Nonetheless, I’m confident the worst is behind us and I am so grateful to you for your prayers and those who have supported us through this long saga.  May you be blessed in return for standing with us in solidarity and support! Thanks be to God.
 
The High Price
 
My disappointment stemmed from the fact that the settlement didn’t cover any of our emotional suffering, and precious little of our financial losses.  Our financial losses stemmed from three major areas:
  1. While we were glad to be done with the IRS, and to have settled our cases regarding their “disallowances,” we still had to pay money that, to this day, we believe we should not have had to pay. 
  2. While we were glad to be done with the State, and to have settled our cases regarding their “disallowances,” we still had to pay money that, to this day, we believe we should not have had to pay. 
  3. We also had to pay for all these years of legal wrangling I’ve been describing.
 
How did we manage to come with all this money?  It wasn’t easy. We did it through a combination of three money sources.
 
  1. Fortunately, Stan and I are fiscal conservatives.  As the money from the conservation easements came in, we held back reserves before distributing funds to our partners, so the partnership had some reserves to start with.  Of course, we quickly drained those funds in paying for the early legal wrangling, but thank goodness they were there..
  2. Second, we called for funds from our partners.  We did several “calls for funds,” but we had to be careful, because most of our partners did not have cash sitting around for these unexpected requests, and many of them lived in terror of losing their houses or worse in this situation.
  3. Third, the partnership took out loans.
  4. Fourth, the malpractice settlement covered some of the outstanding debt, but not all, by a long shot.  
 
The donating partners had to pay the IRS in the summer of 2012.  Now we had to pay off the State, and pay off the loans.  No matter what the outcome of the malpractice case, it could never pay back our partners for all the terror they had lived through. It could never pay me back for losing my marriage, years of my life, my job, my health, and all the sleepless nights.  We had done nothing illegal or immoral.  We followed the rules.  We got screwed.
 
I’m not whining – I’m just stating the facts. We were making progress in dispensing with the mess, but I sure was grumpy about it.  Any peace I felt did not stem from having an outstanding settlement, because it wasn’t.  It was based on the fact that it was the “safest” decision for our partners, pure relief at not having to go to trial, and liberation from the case. We had made grumpy progress.
©Sharon Cairns Mann

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Blog Post #34: Who's at Bat?

12/26/2016

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It helps to have truth on your side!
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I can’t say that 2012 sped by, but it was an intense blur.
 
Robinson, Waters & O’Dorisio (RWO) had taken on the malpractice case, and provided sympathetic, eager and competent counsel.  Mike Callahan was able to ease out of the malpractice, and leave us in capable (and larger) hands, while still leading the charge in our cases against the Colorado Department of Revenue.
 
Moye & White pressed forward in negotiations with the State and the IRS, and we filed suit against the state (as outlined in their procedures) in District Court, Huerfano County (Conservation Easement District 2).  Mike Callahan joined as Co-Counsel on July 7, 2012, and eventually we eased Moye & White out of representing us on the State cases.
 
So, the batting lineup now looked like this:
  • Malpractice:  Robinson, Waters & O’Dorisio (RWO)
  • IRS:  Moye & White
  • State:  Michael Callahan, PC.
 
IRS
By the summer of 2012, we had the final settlement agreements with the IRS for all 14 cases, which were considerably more favorable than what A&J had negotiated.  We submitted the agreements to the court, and the judge’s final decision claimed that we had “deficiencies” in income tax due, but these deficiencies were greatly reduced from the IRS’s original claim of a total disallowance of the charitable contributions we and our partners had claimed for the land donations, and the IRS also waived penalties and interest (which was a considerable amount of money).  While no settlement is ever happy for either side, and we still believed this never should have happened in the first place, we were done.  We were unhappy at the vast sums of money we had lost, disappointed that we had been caught in this “perfect storm” through no fault of our own, but relieved to have it over.
 
State
After some tough and prolonged negotiations with the Colorado Department of Revenue, we finally came to a settlement with them in January of 2013.  Stan, Marsh, and I bit into their legs and harried them like relentless bulldogs.  Our settlement, like any settlement, was discouraging, but it was over and it appeared to be the best we were going to get:  we (meaning all our partners) owed the state $2.1 million dollars, but that was greatly reduced from the State’s original claim and they released us from those prior claims, penalties, and interest as well as future claims. They also allowed the transferees (those who had purchased the tax credits) to keep their previous tax credits and continue to use any unused portion (in other words, transferees were not damaged in any way).
 
Malpractice
 
Simultaneously, the malpractice case was ramping up.  Stan and I, along with quite a few of our partners, had been through grueling depositions.  He went first, and his quick mind and legal experience kept him from being snared by those crazy-wicked lawyer questions. I was next, and for some reason, Major Law Firm decided they wanted to videotape my deposition – maybe it was just to tighten the screws and intimidate me.
 
Among just a few of the insults that were heaped on injury, we were accused of deliberately losing documents in our house fire and chastised for not having an inventory of the documents that we lost in the fire.  How can you inventory ashes?
 
Those days of depositions are permanently etched in my mind.  I remember walking from RWO’s offices to MLF’s offices for my deposition saying, “Keep it together, keep it together, keep it together.” Eight straight hours of being grilled and videotaped ensued while I tried to remain calm, optimistic, and unflappable.  My deep academic experience with language did the same for me as Stan’s legal experience had done for him – I could spot the false proposition embedded in the question, and asked them to rephrase it.  By noon on my deposition day, one of our lead lawyers said he was leaving (we had more than one lawyer there). I panicked a bit and asked him why he was leaving. He said, “You’re a natural. Some people are just born for this. I have no worries. You don’t need me.”  Nice work, team.  Of course, it helps to have truth on your side. ©Sharon Cairns Mann.  

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Blog Post #33:  Two Steps Forward, One Step Back

12/23/2016

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H.B. 1300 had passed and was now law in Colorado.  This bill was introduced to help the State handle the backlog of cases that it created for itself and to provide some remedy for landowners. It shifted the hearing of the cases from the Department of Revenue to District Courts (which we hoped would be less biased).
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IRS
Moye & White continued to press forward with our cases against the IRS in 2011.  By July they had negotiated and we had received a general settlement offer from the IRS, but it ended up having to be negotiated on a case-by-case basis.  As you may recall, we originally had 15 cases against the IRS.  Then the State had, for reasons unknown to us, absolved us and reinstated one of our Conservation Easements.  With that re-instatement, we only had 14 outstanding cases with the IRS. But, the settlement agreements could only be reached by treating each one as separate and distinct, so it was painstakingly slow.  We hoped to have it done by the end of 2011. 
 
State
 
The conservation easement scandal had blossomed into such a disaster in Colorado the State could not handle the mess they had created.  With so many cases looming, legislation was passed to help the state slog its way out of the mire.  Here is an excerpt from a letter we wrote to our partners on July 28, 2011, describing the situation:
 
H.B. 1300 passed and is now law in Colorado.  This bill was introduced to help the State handle the backlog of cases that it created for itself and to provide some remedy for landowners.  It shifted the hearing of the cases from the Department of Revenue to District Courts (which we hope will be less biased) and all landowners who want to use this remedy must file their notice by October 1. [We had already taken care of this for our partners -- Moye & White filed the cases.] The litigators at Moye/White really like the legal points that Stan and Marsh have outlined for them.  We will keep you posted on those developments.  We still have tremendous exposure if we must pay back the tax credit purchasers, but there is no other course of action available except to let this work its way through district court. 
 
Here are the Pros and Cons of the going through the District Court:  While we firmly believe the Department of Revenue erroneously denied our tax credits, and have very strong evidence to support our various claims against the State, there are only a few cases supporting such actions.  If we win we could be entitled to have our tax credits honored and even recover some damages from the State--perhaps even enough to pay the IRS settlement.  But, the decision will be made by a judge who must appreciate fully the arguments and the equity of the matter, and if made negatively, the only recourse would be a full-fledged appeal to the Colorado Court of Appeals.
 
It is possible that the filing of our District Court actions will trigger settlement discussions with the State.  The Attorney General might hope to resolve our cases in order to avoid having the other 600+ donors take the same approach.
 
And, it is also possible that many of the 600 will take the same approach and the judges will be more reluctant to summarily dismiss the claims against the State.
 
Or, the claims could be rejected from the onset and encourage the State to go for all it can get in every case.
 
The District Court cases are our best hope of reducing our losses.  If we do not protest and fight these cases in the District Court, we will most certainly be assessed the full loss.  So, these cases are not optional.
 
The Department of Revenue valued them (the donations) at nothing, and our lawyers are confident we will get a value at close to what our expert has determined.  We have well-stated claims, counterclaims and damages against the State, but there is no assurance we will be able to assert them, let alone win them.  After all, sovereign immunity is a tough hurdle to get over in litigation. 
 
So, in the fall of 2011, we filled our 14 cases against the Colorado Department of Revenue in District court as specified in HB1300.  We now officially had 30 cases going on:  14 against the iRS, 14 against the state, 1 malpractice case, and Stan and I personally had a case against the company who installed our solar arrays on the retreat center – we discovered their errors after the fire.
 
Post-Fire Mitigation and Reconstruction
 
Our post-fire mitigation and reconstruction continued.  It was grim, hard work, but thank God (a million times over) our insurance company honored the claim without batting an eye.  The bad news was that we had had a “builder’s risk” policy, not homeowner’s insurance, so they did not cover the “stuff” that we lost (our clothing and personal things).  But, their engineers examined structural components of the house and agreed it was a huge, expensive task to rebuild, and the reconstruction was covered fairly by insurance.
 
In June I mysteriously lost my job, which troubled me for many different reasons.  But, it suddenly opened up my schedule to assist more with the reconstruction.  We were still displaced and not “allowed” to be at the construction site, but we started sneaking in, staying on cots.  We rigged up one long electric cord from the outside power pole (where all the crews were getting electricity for their work) for a lamp, a mini-fridge, and a microwave.  We lived on corn flakes, deli meats, and frozen dinners.  We had a hose for water and eventually got one shower working (cold water only) in the guest room where we were staying.  As the dry-wall crew moved through, we had to keep moving our little temporary bedroom.  We had many different crews working on the house.  Some wanted to arrive early, before we were up, and some wanted to stay until midnight, so there was almost round-the-clock noise and confusion.
 
On August 19th, after seven months of being displaced, we moved back into our master bedroom, and we had a new certificate of occupancy a couple months later.
 
Interrogatories (Malpractice)
 
Mike Callahan never missed a beat in moving our malpractice case forward against Goliath.
 
Meanwhile, in the midst of the our post-fire chaos, we were entering into the period of “discovery” in the malpractice case, which meant that we – and all our donating partners – had to answer interrogatories and dish up tens of thousands of documents.  The problem with this particular document production was that certain documents are “privileged” and do not have to be turned over to opposing counsel. So, unlike our previous production of documents where we could just hand over boxes and boxes to our own attorneys without reviewing them, we now had to scrutinize every single piece of paper that we – and all our partners – possessed.  This mind-boggling exercise brought our email system to a crashing halt and we had to start using Dropbox and larger email systems to store all the data.
 
At the same time, one of the worst food-borne-illness outbreaks in CDC’s records occurred, resulting in 30 deaths and 147 total confirmed cases between the first recorded case on July 31, 2011 and the last on December 8, 2011.  The listeria that caused this was linked to Jensen Farms in Holly, CO, one of Mike Callahan’s clients. (Can you guess where this story is going?)
 
So, as we closed out 2011, up to our eyeballs in documents, Mike was up to his eyeballs working on the listeria case and it became even more urgent to find a larger firm to represent us in the malpractice case.
 
About the third week in January of 2012, two significant things happened simultaneously.  First, Robinson, Water’s, & O’Dorisio (RWO) agreed to represent us in the malpractice case.  We were thrilled.  Second, Stan and I separated.  We were devastated.
©Sharon Cairns Mann.

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Blog Post #32: Unstoppable

12/22/2016

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The new normal was the two of us, along with whatever paperwork we managed to salvage from the fire debris regarding the lawsuits, crammed into a tiny loft in Denver, trying hard not to miss a beat.  We just couldn’t afford to let up, so we frantically set up a new “office” for Stan and got him back in business again, using a TV tray for a desk in our 700 sf space.
 
By January 24th, just four days after the fire, we continued corresponding with Jeff Springer and Scott McHenry at Springer at Steinberg, P.C. regarding the malpractice case, and pushing to get them to file the complaint against Todd and Wishful Thinking. We had come to believe that negligent advice from Todd and Wishful Thinking had resulted in our exposure to millions of dollars in losses, and we had the statute of limitations question breathing down our necks -- we felt it was urgent to file the complaint. 
 
By January 31, Stan had also met with the new tax lawyers at Moye & White and began deciding the manner in which they would approach the IRS, most likely with a counter-offer to their horrible first offer. We were trying to maintain the case as a consolidated case, rather than 15 separate cases.
 
We wrote to our partners with an update with all this in it on January 31, saying, “Hang in there with us. We are still fighting the battle full force.”
 
Another Law Firm Bites the Dust
 
Springer and Steinberg, PC filed the malpractice case against Todd and Wishful Thinking for us in approximately March (one step forward), but then abruptly backed out of representing us in April.  What!?  We now had a case filed, but no legal representation (two steps back)! 
 
Again we began our desperate search for a malpractice attorney.  Again, we encountered a law firm willing to talk to us, but, after months of discussions they declined to take the case.  (We believe that all these firms who declined to take our case were just too small and were unwilling to go up against the giants…more on that in a few more paragraphs.)
 
We were coming up against some deadline with the court in the malpractice case – I can’t remember what it was – but it was urgent and we needed to do something.
 
Country Lawyer to the Rescue
 
On July 7, 2011, we attended a meeting in La Junta of Landowners United (LOU), the group of landowners in southeastern Colorado who had all been hurt by the conservation easement scandal (see Blog Post #26  for a fuller description of LOU).  We met a “country lawyer” there named Michael Callahan.  Mike’s office is in Pueblo, but he served southeastern Colorado, mostly on agricultural and land-related issues.
 
After the meeting, I insisted that Stan call Mike to see if he would take on the malpractice case, even if it was temporary.
 
To our amazement, Mike agreed to see us, so on July 25, 2001, we drove to Pueblo and told him our story.  Maybe because he’s just a good guy, or maybe because he had already heard so much of the anguish from other landowners, but Mike did not have the same disdain for us that the other lawyers we had approached had had. 
 
For him to take on the malpractice case against Todd, Todd’s huge law firm, and the other large law firm that represented them was more than a David and Goliath story.  This little one-man law office just didn’t have the resources to tackle this.  But he was willing to take it on with the understanding that 1) he was stepping in to save our butts in the short-term, 2) that Stan and our other lawyer partner (Marsh) would have to work like maniacs to support the endeavor, and 3) that we would need to continue to look for representation from a larger law firm with more resources.
 
Mike was our hero – we finally had someone who would really champion our cause, and not in the half-assed, half-hearted way that we had previously experienced with the other law firms and prospective law firms.  Mike was on board and at last we had a ray of hope: maybe we would survive!
©Sharon Cairns Mann

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Blog Post #31:  A Benediction for the Unthinkable

12/21/2016

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One sleepless, anxiety filled night, I cried out to God and asked that question: “How am I going to make it through this?  I need your help!  DO SOMETHING!”  And the answer came, just as if God spoke: “I don’t need to do anything. Everything you need and everything you want is already inside of you.” What an interesting message, I thought. What is already inside me?
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In the early morning hours of January 20, 2011, the unthinkable happened.  My phone rang at 5:30 a.m.  I was already up; nonetheless, an early morning phone call is not a good sign.  I was in Denver, three hours away from our home in Walsenburg.  Caller I.D. showed the call was from my husband. I answered and my heart caught in my throat: he was crying.  He could hardly talk.  He finally managed to say, “We’ve had a fire.”  He provided sketchy details; nothing made sense. I could only grasp a few things: 1:00 a.m., explosion, flames inside, fire department, extensive damage.  He was okay, just exhausted.  I called my boss, canceled all plans for the day, jumped in the car, and drove into a murky new future.
 
“The Worst Day of our Lives,” I wrote in my journal.  We had painstakingly designed and lovingly worked on this large facility – a combination dream home and conference/retreat center – for 13 years.  It was completely custom, and, not having enough money to have it built, we eked out the cash for supplies from our meager monthly income and did everything ourselves, by hand. It had been back-breaking work, with real blood, sweat, and tears poured into it.  Lost? Destroyed? How could this be?  This was God’s project, we thought.  We had committed the whole process and the outcome to God, believing and hoping we were creating a sanctuary for others, a place of peace, healing, and restoration.
 
A gas explosion?  That’s something that happens to “other” people, not to you – not to me!  It’s something freaky you see on T.V.  How could such a thing happen? We learned later that a worker had pierced a gas line (propane) with a nail (which means the nail pierced the protective steel casing), but he didn’t know he had hit the line.  No one did.  And, so, the gas leaked, filling the interior walls until it finally reached a pilot light in a gas fireplace in the wall and blew up.  Thankfully, the worker was long gone, Stan was asleep in the room farthest away from the explosion, and I was out of town.  The good news was just that:  no one was hurt.  The bad news was that explosion tore open the wall and roof, the roof was caving in, and the fire had raced through most of the interior walls.  We were going to have to gut the place and start over.
 
How could this happen when we were already maxed out emotionally – already up to our eyeballs in the paperwork and monumental stress of all the mess of the problems with the conservation easements?
 
The following days and weeks were a blur of unfamiliar activities.  No one gives you a manual for what to do if your house blows up.  Where do you start?  What do you do?  Immediately after the fire, we wandered through the ashes and debris staring.  It was simply overwhelming. We couldn’t find essentials: car keys, check books, and worst of all, the documents pertinent to the lawsuits.  We needed a place to stay.  The questions and the anxiety were overwhelming.  I started throwing up. 
 
After the insurance company hired mitigation and construction crews, reality hit me:  this wasn’t going to be fixed overnight.  We had months and months, maybe years -- even with the insurance paying for crews – before anything would be back to “normal.”  It was an unholy mess, chaos beyond imagination.  The burning of the Icynene™ insulation resulted in a massively toxic cloud and residue everywhere, and we were not allowed in the falling-down building. 
 
We were displaced.  We had no choice but to physically relocate to the tiny loft we owned in Denver.  We didn’t take anything because any stuff that hadn’t burned up was toxic and had to be discarded.
 
Between the lawsuits and the construction project, there were too many details for my poor brain to handle.  Even though the construction crew would take over the building task, I had to answer a million questions a day.  There are no words to describe the depression, despair, and exhaustion I was experiencing. 
 
My mental health was getting a little wobbly.  I never cried after the fire.  I was afraid if I started to cry, I would never stop and they might have to hospitalize me. I was afraid I would start to scream and never be able to stop, and so I kept quiet.  To me it looked like I was facing a huge mountain of manure that had to be moved, and I only had a very tiny toy teaspoon.  That’s what it felt like every day – a big mess and no way to even make a dent on it.  My emotions were getting more and more fragile, more raggedy.  How was I going to make it through? 
 
One sleepless, anxiety filled night, I cried out to God and asked him that question:  “How am I going to make it through this?  I need your help!  DO SOMETHING!”  And the answer came, just as if God spoke:  “I don’t need to do anything.  Everything you need and everything you want is already inside of you.” 
 
What an interesting message, I thought. What is already inside me?  I remembered my favorite benediction that simply lists the graces we receive: “You, Child of a most loving and merciful God, Have been blessed by the Baptismal Font, This Community, The Bread and Wine, The Holy Scriptures, and The Grace of our Lord, Jesus Christ.”  Well, what more could one ask for?
 
I realized that throughout my life I had accumulated a deep well of “good stuff” inside of me in addition to the graces listed above: a treasure trove of scripture that I had memorized; happy memories; good values; inspiring sermons; positive stories; and the love of family and friends.  I began to imagine taking big buckets and dipping them deep into this abundance that I had been storing up in my heart, mind, and soul over my lifetime.  In the midst of crisis, I dipped those buckets deep into all the “good stuff” that had accumulated in my well, and pulled up bucket loads of grace, peace, strength and courage.  The only sane thing to do was to drink from the wealth of my well, face the problem courageously, be bigger than the problem, and soldier on.
 
Thus, the post-fire days were transformed from the worst days of my life to just-enough-grace days as I faced down the temptation to be angry and feel sorry for myself. I became keenly aware that there was no point in caving in:  we still had to deal with the wreckage, whether we wanted to or not.  And, our loss, no matter how huge, was small compared to what others go through. 
 
Was I exhausted?  Yes.  Disappointed?  Yes.  But I was thrilled to discover the depth of the well inside of me, and the contents that sustained me.  Encountering that abundance and plumbing the depths of that well changed the complexion of those days.  Please don’t misunderstand.  Those were neither fun nor pleasant days.  They were exhausting and unpleasant, but they were filled to the brim with the surprise of the grace of “getting through.”   
 
The murky new future I had driven into was just one more chapter in the story of my life -- the chapter in which my mettle was tested and God gave me what I needed.  He didn’t rescue me from what I had to face, but he had stored “everything I wanted and everything I needed” inside of me.  May you never have to dip into that well, but when you do, may you find it filled with God’s grace and peace, ready for you to guzzle in your time of need.
©Sharon Cairns Mann


You, Child of a most loving and merciful God,
Have been blessed by the
Baptismal Font,
This Community,
The Bread and Wine,
The Holy Scriptures, and
The Grace of our Lord, Jesus Christ.
 
May the love you have heard about, participated in, and been freely given, shine in you and from you into the world.  Go forth in peace my brothers and sisters.  Go forth in Peace. 
 
Amen
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Blog Post #30:  The Smoking Gun

12/20/2016

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This nasty development meant we finally had the “smoking gun” – we had defined Todd’s negligence and it was costing us everything with the IRS.
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Stan drafts malpractice case.
 
Stan was seriously concerned about A&J’s failure to move forward with the malpractice case in a timely way, so -- in the essence of time and to keep things moving -- Stan, along with two partners, started drafting a complaint against Todd.  As mentioned in the previous post, we still didn’t know exactly what he had done wrong, nor did we have an exact amount on our damages, but we were worried about the statute of limitations and Stan felt that if he drafted the complaint himself, it might get A&J off the dime to at least file the complaint, even if they didn’t pursue it.
 
By the end of 2010, we parted ways with A&J on the malpractice portion of our cases (they kept the IRS portion) because they just did not want to take it on.  We switched to representation by Springer and Steiner for the malpractice case, going through the same tedious steps of getting all our partners notified and having them sign the engagement letter. 
 
Settlement Talks Break Down
 
Meanwhile, our settlement talks with the IRS (handled by A&J) broke down, and it boiled down to the fact that the Noah Land Trust (to whom we had donated the Conservation Easements) had not sent us Contemporaneous Written Acknowledgements (CWAs) (otherwise just known as “donor receipts,”) for the Conservation Easement donations we had made.  We had stacks and stacks of paperwork for every single donation to prove that we had done it – there was no doubt that we had made these donations.  But the IRS was sticking to this bit of minutia, in spite of all our evidence that we had made the donation.
 
In fact, Paul Geer, the Executive Director Noah Land Trust, insisted he had sent them, he would send an affidavit to that effect, and would send new ones – none of which the IRS found acceptable.  (And, we know that Noah Land Trust had not sent them, as 1) our record keeping was impeccable and 2) it was the one single document missing for every single donation.)  So, lacking this single piece of paper meant we were screwed.  Totally, royally screwed. 
 
As a result, A&J came to an agreement with the IRS wherein we would basically have to pay about 99% of what they said we owed.  The settlement granted us a 1% discount, or some such nonsense.  We were outraged with the IRS and we were outraged with A&J – after spending a year working with them and tens of thousands of dollars in fees, they had garnered us a 1% discount.  Big deal!
 
The Smoking Gun
 
But this very nasty development meant two important (albeit unhappy things):  1) we were beginning to know what our losses were; and 2) we now had the “smoking gun” – we had defined Todd’s negligence.  As a “one-stop shop” he had failed to ensure that we received the CWAs, to ensure that Noah had sent them, to ensure that we had received them, and it was costing us everything with the IRS.
 
More Changes
 
So, we had parted ways with A&J over their resistance and foot-dragging on the malpractice case, and now we were disgusted by the horrible settlement offer from the IRS that they pushing on us, so we also parted ways with them on the IRS matter as well.  By January 11, 2011, we had visited with Scott Greiner at Moye & White, who agreed to take on the IRS portion of our troubles. (Is your head spinning?)
 
You can imagine our despair over having to move from one attorney to the next.  While it is easy to assume we were somehow to blame for all these attorney changes, please remember, we were on the leading edge of a fairly new issue and there were significant political and social overtones to our cases.  You may recall that Todd was working at Wishful Thinking, one of the largest law firms in Denver, who was represented by one of the other largest law firms in Denver.  So the law firms we approached for representation, especially smaller ones, simply did want to take them on.
 
So, there we were again – telling our story to new attorneys (again), bringing them up to speed on the complicated details (again), and spending all our time providing documents to these two new law firms (again) and trying to convince our poor partners that they had to sign new engagement letters (again) and that this was all going to turn out okay! 
 
I don’t remember ever taking a real break in those years.  I was still working at my unsuitable job in Westminster, north of Denver, earning money we desperately needed to get us through this mess. In those days, I really thought my head was going to burst into flames, and as I’m now looking back through the hundreds of emails between us and our partners over every little thing – their K-1s, notices from the IRS, updates on attorneys, spreadsheets, and so on – all I can say is, “it was a mess!” ©Sharon Cairns Mann 

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Blog Post #29:  The Statute of Limitations:  Tug of War

12/19/2016

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So, there we were:  white knuckles, chest pains, and panic attacks . . . not the life I had envisioned for myself or my family and I was sick about it! 
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In addition to the detailed work Stan was doing on the State matters, especially on the HB-1169, we had to keep the malpractice ball in the air, especially when our fears were fueled when another unsettling news article surfaced about our attorney: “A federal grand jury is investigating Denver lawyer [name redacted] for possible abuse of the conservation-easement tax-credit program.” (The Denver Post, Aug. 17, 2010.) 
 
Once again we were left scratching our heads, mostly trying to figure out what this meant, and not seeing any connection to us.  (And, I’ll just give you a little preview:  there never was any connection to us, and nothing came of this in regards to our issues, but it was still a troubling bunny trail.)  Nonetheless, as mentioned in a previous blog post (#26), Stan had pushed A&J to file a malpractice suit against Todd in May of 2010. 
 
Since then, Nick (attorney at A&J) had been since negotiating with Major Law Firm, which represented both Todd and Todd’s very large law firm, Wishful Thinking, about a “tolling agreement” (an agreement to waive the right to claim that litigation should be dismissed due to the expiration of a statute of limitations).  Naturally neither MLF nor the insurance company that covered Todd and Wishful Thinking, were in favor of tolling agreements.  They said they would consider it if we showed them our complete file.  Ha, ha.
 
The Statute of Limitations Swamp
 
To be clear, nobody knows when the statute of limitations in this case really started to run or when it might end, because the language is so weird.  In Colorado, there is a two-year statute of limitations period for general negligence claims.  However, when the statute of limitations period begins running is not always clear – that is, at what date does your two-year period begin?  The language indicates that it begins when you knew or when you should have known of your injuries.
 
But, we still did not know exactly what our injuries were.  Obviously, we were in a world of hurt, but what specifically had Todd done?  How had he been negligent?  And how specifically had we been injured?  We were mired in problems, and had spent money on attorneys trying to fix the problems, but we had not yet paid a fine or a penalty or interest.  So, what were our actual damages?  We weren’t sure what had caused this mess we were in, but we were worried about this statute of limitations issue and wanted to preserve our right to file a malpractice case. It was a swamp!
 
More Disturbing News
 
We thought we had turned the malpractice case over to A&J (and our emails support the fact that Stan gave them clear direction to proceed), but on September 15, 2010, Nick at A&J sent us an email that was very disturbing.  It started with a lot of legalese about what triggering date for the statue of limitations on a malpractice claim against an attorney (discussed above). Nick then concludes with, “I don’t want to take a chance on this and would suggest that you file suit right away. However, you and your partners have not retained A&J to pursue malpractice claims. As such, if you want to file these suits, we would need a new matter, agreement, and retainer. Let’s talk when you have a chance to read this.”
 
Naturally, we were stunned.  We had been discussing this with A&J for 10 months.  Stan did a quick “reality check,” with our partners, and all those we contacted said they thought A&J was already representing us in this matter.  But, just to cover all the bases, Stan asked a couple of our partners who were retired attorneys to search for a “back-up” firm for the malpractice case.
 
Stan replied very bluntly to Nick that Nick should “get on it with it” in both the IRS and the malpractice cases.
 
In mid-October of 2010, we received a trial date for March 14, 2011 for the IRS cases.  A&J notified us that they would start moving forward with discovery (admissions, request for production of documents, interrogatories, etc.).  The IRS agent we were now working with, Tom Raddow, suggested we make him an offer for settlement, but we were concerned that his idea of settlement was much closer to his number than ours.  Still, we were very happy to have a settlement conference set for November 10, 2010 with Tom and Bo. 
 
The problem was that we were very disgruntled with A&J and, in consultation with one of our attorney partners, had just written a letter protesting the enormous fees A&J were charging us for very little work.  We decided we wouldn’t send the protest letter, but would instead delay our payment of their bill…but not paying them right before a settlement conference could be disastrous.
 
So, there we were:  white knuckles, chest pains, panic attacks, and nonstop bickering between me and Stan.  This was absolutely not the life I had envisioned for myself or my family and I was sick about it!
©Sharon Cairns Mann

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Blog Post #28:  A  Call for Total Amnesty

12/14/2016

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As a result, due to the reliance of innocent people on the program as designed, Colorado acquired tens of thousands of open-space acres in permanent conservation easements for tax credits that never exceeded half the appraised value of the conservation easement itself.
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As a result of attending the “Special Review Committee” In August of 2010 (see previous post #26), Stan began to work with Representative Wes McKinley to redraft HB10-1169 regarding a solution to the now hundreds of cases of landowners who had received notices that their appraisals/donations were worthless (how can land be worthless?) and that their tax credits had been disallowed. The following is the product of his labors.  Sorry folks, it’s long, and you may not want to read it all, but this blog is a repository of historical data.  So here goes:
 
 
The Colorado Conservation Easement Program Prior to the 2008 Changes in the Law, The Significant Changes and the Unfair Disallowance-of-Tax-Credit Process 
By Stanley K. Mann
 
The Program Prior to 2008
 
Providing tax incentives to landowners for donating perpetual conservation easements is not new to Colorado.  Since the 1980s the incentives were somewhat patterned after IRC § 170 (h).1  The incentives progressed from tax reduction to transferable tax credits with carry-forward provisions.  The program was so successful that the legislature kept increasing the incentive in order to induce landowners to donate their exploitation rights in land to conservation trusts. 
 
Thus, on January 1, 2003 the tax credit then available was increased from a maximum of $100,000 to $260,000.2  This maximum was based upon a two-tiered structure whereby the tax credit claimed could equal 100% of the first $100,000 of donated easement value, and 40% of the next $400,000 of donated easement value up to a maximum donated value of $500,000.  The mathematical result was thus a maximum tax credit of $260,000.
 
Also, at that time the donating taxpayer could carry over the deductions for a period of five years after the year of donation.3  Alternatively, the donating taxpayer could even sell the state income tax credit to a third party.4  And, landowners found the sale of the credits to be relatively easy.  For example: “A taxpayer could reasonably expect to broker his or her credits for about eighty cents on the dollar with 10 cents on the dollar (or a 10 percent reduction) offered to attract buyers; and 10 cents on the dollar (or a 10 percent commission) taken by a broker. Taxpayers who knew other taxpayers who might be interested in buying their credit could avoid a broker's surcharge by exchanging the credits themselves.”5
 
Because of the overwhelming success of the incentive legislation, other inducements were also added.  Among those inducements was the elimination of the minimum threshold amount available for transfer to tax credit buyers, which theretofore had gone through a series of complex limitations.6

To qualify for a state tax credit, under the 2003 version of the law, the donating taxpayer, in support of the value of the easement, had only to submit to the Colorado Department of Revenue a summary of a qualified appraisal, as opposed to a complete appraisal.7  Further, the definition of “who is an eligible taxpayer” for a tax credit included a resident individual, or a domestic or foreign corporation, . . .a partnership, S corporation, or other similar pass-through entity, estate, or trust.8  And, the motive for making the donation was not restricted to some altruistic notion of conservation, but could clearly focus upon the economic gain from the sale of the tax credit.9  “Thus, the fact that a donor may be motivated solely by tax credits should not be understood to defeat the charitable intent of a donor making a conservation easement contribution.”10
 
The law necessarily “. . . created an incentive for people to become Colorado taxpayers.  A significant, yet currently anecdotal, consequence of the credit law involves the creation of pass-through entities such as partnerships and LLCs under Colorado law for the sole purpose of qualifying partners and members for tax credits.”11 
 
The law also led to the fragmentation of real property by dividing property formerly owned by one owner into multiple parcels and multiple ownerships, or by fragmentary phased donations over a period of years either by the one owner or the multiple owners.
 
Even back in 2003 some recognized the fact that the incentives resulted in fragmentation of real estate strictly for conservation easement donations; that the motive was to obtain saleable tax credits, and that, through the LLC structure, non-Colorado residents could receive the proceeds from those sales.12  While even back in 2003 these results were regarded by some as “abuses,” the legislature apparently continued to recognize the success of the program and condone the so-called “abuses.”  
 
The legislature’s recognition of the success of the conservation easement incentives was again dramatically illustrated by the fact that on May 1, 2006, then Governor Owens signed into law House Bill 06-1354.  House Bill 06-1354 replaced the former two-tiered structure described above with a single-rate structure that allowed 50% of the fair market value of the donated easement to be claimed as a tax credit.  And by raising the maximum easement donation value to $750,000, the maximum tax credit that could be claimed was raised from $260,000 to $375,000.  Even the federal government added to the incentives by increasing the allowable conservation credit donation deduction up to 50% of the total contributions and by extending the carry-over period for the donation deduction to 15 years.13 
 
Even in 2003 legislators were being urged to understand and appreciate the success of the conservation easement program in Colorado, and not allow the so-called, and readily recognized “abuses” to harm the overwhelming success experienced to date.
 
“The fact that tax credits are incentives for the donation of easements on smaller parcels of land or land owned by multiple owners should not be used as a means to discourage such donations. In fact, motivation of potential donors by the tax credit incentive is a tribute to the success of the incentive itself. After all, the motivation is a tax credit incentive designed both to mimic and expand on federal tax deduction incentives and it is doing just that. If the tax credit incentive causes Colorado taxpayers to conserve Colorado properties that they would not otherwise have conserved and, at the same time, provides a new source of income for such taxpayers, the tax credit is accomplishing exactly what its sponsors intended. It brings Colorado taxpayers and more important, additional Colorado properties to the conservation arena.” (Emphasis added)14
 
The 2008 Changes
 
Unfortunately, the United States experienced a major economic downturn in 2007.  While the downturn may not have been the cause for new legislation in the Colorado conservation easement program, it did appear to cause a strange kind of “witch-hunt” and media frenzy in the program.  And, even though the so-called “abuses” recognized from 2003 had not heretofore been worthy of legislative action other than the addition of greater inducements to the program, now they seemed to be the basis of serious curtailment of some aspects of the program.  House Bill 08-1353 became effective July 1, 2008, and will no doubt dramatically reduce the number of acres that will become part of the conservation easement program in Colorado.
 
Perhaps harkening back to what was already voiced in 2003 by some, House Bill 08-1353 declared in part that “Some promoters have abused the tax credit program to obtain a financial benefit for themselves and their clients by submitting easements that misrepresent a property’s conservation or financial values.”[16]  The Bill requires conservation easement appraisers to submit full appraisals to the division of real estate within thirty days accompanied by an affidavit to include: a statement as to value, and the method of determining value; whether or not sand, gravel, minerals, water and improvements were considered; whether subdivision analysis was considered; contiguity information; licensing qualifications; classroom education in conservation easement valuation; and the number of previous conservation easement appraisals.  And, the real estate division has broad powers to investigate valuation and report to the Department of Revenue.[17]
 
House Bill 08-1353 enacted CRS 12-61-720 to set up standards for holders of conservation easements; enacted CRS 12-61-721 to create an oversight commission to oversee the conservation easement program; revised CRS 39-22-522 to qualify the manner in which claimed tax credits could be investigated; and modified other Colorado statutes to conform with the changes.
 
These 2008 changes in the law related to conservation easements are not necessarily bad in and of themselves, but a series of events prior to their enactment together with that enactment has resulted in some highly unfair practices by the State of Colorado against its own innocent citizens.
 
The Unfair Disallowance-of-Tax-Credit Process
 
For reasons known only to the State agent in question, an agent for the State, empowered to investigate conservation easement appraisers, began a sort of witch hunt against selected real estate appraisers in Colorado.  The method was to allege numerous allegations against the appraiser and supply the same allegations to the media.  Obviously, a media feeding frenzy resulted and the entire Colorado easement program came under severe attack. 
 
We are familiar with a case where the agent for the State referred to above reported to the Real Estate Board for Colorado a multitude of violations against an appraiser who had appraised quite a number of conservation easements in Colorado.  Based upon that information, the Board summarily suspended the license of that appraiser, and further sought the revocation of the license and civil penalties.  All of this information was given to the media and widely circulated in numerous publications.
 
Hearing before an Administrative Law Judge resulted in a finding different from what the agent and the Board anticipated, because the violations were not as numerous and egregious as alleged.  Indeed, the ALJ ruled that although there were some errors, they were not sufficient to prove they were willful or that the valuation of the property was inflated or intentionally inflated.  The ALJ imposed a short license suspension, with credit given for the time the license had been under summary suspension, and a $500 fine.
 
However, in spite of this ruling by the ALJ, according to broad media reports, the agent for the State referred to above reported to the Real Estate Board the initial allegations and sought revocation of the appraiser’s license and a fine in the range of $15,000.00. 
 
Even before the 2008 revisions to the Colorado conservation laws, CRS 39-22-522 (3.5)(a) stated in part: “In resolving disputes regarding the validity or the amount of a credit allowed pursuant to subsection (2) of this section, including the value of the conservation easement for which the credit is granted, the executive director shall have the authority, for good cause shown to review and accept or reject, in whole or in part, the appraisal value of the easement, . . . .”  (Emphasis added.)  But, based upon the allegations against the appraiser referred to above, without any reference whatsoever to the actual outcome of the hearing before the ALJ, tax credits were disallowed on the property the subject of the appraisal.
 
If this were an isolated incident it might be possible to explain the disallowance, but there are literally hundreds of such cases now pending in the State and also before the IRS hearing officers and the U.S. Tax Court, and some of the tax credit disallowances date back as far as 2003.  To add insult to injury the Executive Director of the Department of Revenue has stated publicly that she has insufficient funds to seek new appraisals by qualified appraisers or otherwise hire qualified investigators to properly investigate and process these hundreds of disallowance cases.  In fact, the Executive Director maintains that her “hands are tied” and she must simply process the hundreds of cases in a slow case-by-case process with her present staff. 
 
A lawyer, present at that same public meeting where the Executive Director made her comments, stated at the meeting publicly that he was part of the current Governor’s study team to find a solution, and that the solution endorsed by the Governor—a mediation process—is no solution at all in that at the current rate it will take over 100 years to process the currently pending cases.[18]
 
Apparently, some in the State government recognized that the Department of Revenue needed some guidance as to what constitutes “for good cause shown,” because HB 08-1353 revised CRS 39-22-522 (3.5)(a) to require the executive director of revenue to also consult with the Division of Real Estate and the Oversight Commission to review and accept or reject a tax credit.  No such consultation is required with respect to the currently pending cases.  According to the Executive Director’s statements at the above-described public meeting, her staff examines the returns and if the appraisal seems too high the tax credit is disallowed.  No expert input is sought, no qualified appraisers consulted, no investigation by qualified people conducted, but just the staff of the department because, “there are simply insufficient funds.”[19]
 
It appears to be patently obvious that in all these pending cases the process, as it is being conducted by the Department of Revenue and the mediation process, is seeking an easement value of zero or nearly zero as an effort to “recover unpaid state income taxes.”[20]  Media reports and some legislators seem to erroneously believe something near $200 Million will be recovered by the State.  In adopting such a non-supportable position and belief, these acting agents of Colorado are ignoring these important things:
 
  1. As the law is structured the State acquired each conservation easement in the first place pursuant to its own standards and requirements.
  2. Those standards and requirements had recognized pitfalls and what some stated as potential “abuses” dating from 2003.  However, the legislature patently endorsed those pitfalls and abuses by its added incentives in subsequent years.[21]
  3. As the law was structured, the State acquired the conservation easements for a tax credit valued at half the actual appraised value of the donation.
  4. The current State process goal seems to be to keep the conservation easement donations on the one hand, but to fully recover the taxes previously credited for those easements.  To accomplish this and recover almost $200 Million for the State would require a zero value for every disallowed tax credit—even after full hearings or trials—which is an outcome that is virtually not possible.[22]
  5. The current process totally ignores due process of law for those accused of submitting claims for tax credits.[23]
  6. Conservation easements are to be valued by taking into consideration the highest and best use of the land involved.[24]
  7. Donors would never have made the donations in the first place if they had known there was a chance they would lose both their land exploitation rights and their tax credits.
  8. The land of each donor is now tainted with a far lower value due to the conservation easement, and the remaining land may now be undevelopeable because of the loss of economies of scale.
  9. In most cases the donors sold the tax credits to third persons, paid ordinary income tax on the proceeds, spent the tax credit proceeds and are now in no position to pay back the tax credit purchasers let alone pay the State.
  10. The statute of limitations for amending tax returns will actually run out well before most cases will be processed by the State unless the donor/taxpayer actually preliminarily files some sort of petition for refund in advance of a final resolution.  Likely, few will know of this process because they will not have any idea what to ask for as a refund, and will assume that in a worst-case scenario they would not actually lose their entire tax credit.  But, even if they lost part of it they would be entitled to some refund of taxes paid upon the sale of a full tax credit, but lose it because the statute of limitations will have run. This is unfair to the donor because if the donor/taxpayer’s position is different from that reported in an earlier return, there is no opportunity to recover potential refunds of taxes paid.
  11. In an attempt to comply with the law, hundreds of donors expended significant sums in legal, accounting and appraisal fees to participate in the Colorado conservation easement program, and are now expending huge sums defending themselves against the IRS and the Colorado Department of Revenue—all with absolutely no hope of recovering any of those expenditures, even when they prevail.
  12. It is totally unrealistic to anticipate the State will prevail in enough cases now pending to actually offset the expenses required to process the pending cases in a manner that will afford due process of law and avoid the other potential claims Colorado will face if the current process continues at its current pace.
  13. Donors, in an effort to survive this costly and unfair assault, will have to exploit any land they retain to the greatest possible limit, thus defeating the very goal the conservation easement program sought in the first place.
  14. Donors will litigate these disallowance for years to come, at great cost to the State, and there are many legal options that may be available to donors whose tax credits have been disallowed if the current process is allowed to continue:
 
  1. Estoppel to deny the tax credits because the State designed the program; knew or should have known of its pitfalls and potential “abuses;” passed additional legislation adding new incentives to participate in the program; knew donors relied upon the structure of the program, then sought to disallow the credits.
  2. Laches for failing to process the disallowances in a manner involving due process, mitigation of losses to the donors and irretrievable harm to the donors.
  3. Interference with contract prohibited by the State and Federal Constitutions.
 
  1. Having sold their tax credits most donors will not be willing to mediate the value of their easement donations below the threshold required for what they claimed as a tax credit.  For those there is no gain to the State, and litigation is certain.
  2. The costs of litigation for both the State and the donors will go on for years to come.
  3. Many innocent, well-meaning Colorado citizens will simply go bankrupt as a result of this unfortunate process.
  4. The reputation of Colorado and Colorado government will be seriously harmed.

Summary
 
Colorado lawmakers designed an excellent conservation easement program with built-in incentives to attract donors who would otherwise not consider such a donation but rather, would exploit their land in some fashion.  The program was so successful that the lawmakers adopted new incentives to increase the conservation easement donations.  Lawmakers knew that the structure of the law allowed what some viewed as possible “abuses,” but adopted new incentives nonetheless because the program was accomplishing exactly what it was designed to accomplish.  As a result, due to the reliance of innocent people on the program as designed, Colorado acquired tens of thousands of open-space acres in permanent conservation easements for tax credits that never exceeded half the appraised value of the conservation easement itself.
 
Perhaps because of the 2007 economic downturn, or perhaps due to one or more overzealous State agents, or some combination of both, the conservation easement program became an item of focus and attack.  Fueled by the media, an aggressive pattern of tax credit disallowances ensued, apparently upon the basis of the so-called “abuses” that lawmakers had heretofore obviously chosen to condone.  The result has been that literally hundreds of disallowance cases are now pending in Colorado; no funds are available to process these cases in a due-process manner; no proper process has been put in place; and, the State, the donors, and the tax credit purchasers will all be facing irretrievable losses with no real expectation of favorable results.
 
The Solution
 
The only logical solution to this terribly unfair situation is a total amnesty bill validating all tax credits prior to the 2008 changes in the law, and carefully designed to restore the integrity of the conservation easement program; exonerate the hundreds of innocent landowner donors; and restore the confidence of the past and future purchasers of tax credits. Article by Stanley K. Mann; blog (c)Sharon Cairns Mann.


1 See, Jay, Jessica E. CHANGES TO COLORADO’S CONSERVATION INCOME TAX CREDIT LAW, The Colorado Lawyer, February 2003, Vol. 32, No. 2.

2 House Bill (H.B.) 01-1090.

3 CRS Sections 38-30.5-100 et seq.; IRC Section 170(b); Treas. Reg. Section 1.170A-14 (1986); Treas. Reg. Section 1.170A-8 (1986).

4 CRS Section 39-22-522.  See, H.B. 00-1348.

5 Id. Jay, fn 1.  Conservation Tax Credit Exchange Brochure (2002), available at Conservation Resource Center, LEAP111@aol.com; 2334 N. Broadway, Ste. A, Boulder, CO 80304, (303) 544-1044.

6 H.B. 01-1090, codified in amended CRS Section 39-22-522 (signed into law June 1, 2001; effective Jan. 1, 2003).

7 Treas. Reg. Section 1.170A-13(c)(4) (1986).

8 H.B. 01-1090, supra, note 6.

9 McLennan v. U.S., 24 Cl.Ct. 102, 106, n.8 (1991) ("Donation of property for the exclusive purpose of receiving a tax deduction does not vitiate the charitable nature of the contribution.").

10 Jay, supra, fn. 1.

11 Id.

12 Id.

13 H.R. 4-289, Section 1206 (a)(1).

14 Jay, supra, fn. 1.

[16]HB 08-1353, Section 1 (b).

[17] HB 08-1353, amending CRS 12-61-719.

[18] The public meeting was a Special Review Committee meeting regarding HB 10-1169, hosted by State Representative, Wes McKinley at the State Capitol Building on August 4, 2010.

[19] Id.

[20] Fiscal Analyst, Harry Zeid, in The Colorado Legislative Council Staff Fiscal Note: State Fiscal Impact, HB10-1169 finds that the State Revenue impact will be $169.5 Million from the Bill and that the General Fund Expenditure will be $26,983.  He assumes, of course, that the Department of Revenue estimate of $169.5 Million in disallowed credits will be lost if HB10-1169 were passed.  This, however, has been interpreted to mean that if the disallowances are processed, all will be fully disallowed and the State will actually recover the full $169.5 Million in previously unpaid taxes.   

[21] See fns. 2 and 13, supra.

[22] Fn. 20. supra.

[23] See, e.g., Colorado State Board of Dental Examiners v. Michell, 928 P.2d 839, 842 (Colo. App. 1996).

[24] Hughes v. Comm’r of Internal Revenue, U.S. Tax Court, 26, 42,43 (2009); Kiva Dunes Conservation, LLC, E.D. Drummond, Tax Matters Partner v. Comm’r of Internal Revenue, U.S. Tax Court, (2009-145).
 

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Blog Post #27:  Special Review Committee

12/7/2016

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The concept of letting the Department of Revenue grind its way through these cases at their own speed without clear guidelines is entirely unacceptable, abusive, and probably unconstitutional.
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On August 4, 2010, Stan attended a Special Review Committee at the Colorado State Capital to review the effort by Wes McKinley to grant amnesty to all the landowners whose C.E. donations had been disallowed. Here’s a slightly redacted report that Stan wrote to our partners.
 
Dear Partners:
 
Yesterday a Special Review Committee met in the Colorado State Capital to review HB-1169.  This Bill was an amnesty effort to grandfather in all tax credits from 2003-2007 as a way to end the approximately 500+ tax-credit-disallowance cases now pending in Colorado.  The Bill was originally sponsored by State Representative Wes McKinley and co-sponsored by Speaker Terrance Carroll.  In addition to the Committee members (Brian Del Grosso; Cheri Gerou, John Kefalas, Jeanne Labuda), there were several other legislators present, most from the Finance Committee and at least one whose oversight included the Department of Regulatory Agencies.
 
The Bill was originally vehemently opposed by the Governor and had been “Put-over Indefinitely” for further study (see Blog #26: “Yes, it can get worse”).  The Governor instead endorsed a mediation process for negotiating each case to a resolution designed to gain some income for the State.  The Department of Revenue was charged with evaluating each case and making recommendations to the Attorney General for negotiation compromises relative to mediation.  However, then the budget for the Department of Revenue was severely limited—as all budgets are at this point—and the Department of Revenue could not afford to hire appraisers and properly evaluate cases.  So, all the Department has done to date is assign someone to review the returns involving conservation easements and disallow whatever ones they decide to disallow.  Where the mediation process stands, whether or not it is actually binding upon any of the involved parties—i.e. donors, purchasers--; and who is going to pay for it seems to be undetermined.
 
Wes McKinley chaired the meeting and gave the Executive Director of the Department of Revenue one hour—including questions from the audience—to present her Department’s position regarding the process now in place.  Wes then gave Landowner/Donors one hour to present their position and suggestions to the Committee—also including questions from the audience and the legislators.  And finally, he gave those who purchased tax credits one hour to present their position, suggestions and responses to questions.
 
Revenue: Essentially, the position of the Director of Revenue is that she “is doing all she can with the budget she has,” and although it is devastating to many of us, we “are not alone and must just see it through” because she and her department are all good people doing their best.
 
Landowner/Donors:  Three of our partners, Marsh, Walt, and Paul went with me to the meeting.  Marsh and Walt—both of whom are lawyers—spent time helping me prepare to speak for our partners at the meeting. 
 
Our Presentation: When the Chair called for input from Landowners/Donors I was first on my feet to speak in behalf of all of you. The essence of what I presented is outlined below in the Handout (I left copies for each legislator at the end of my comments).  However, mostly because of the presentation of the Director of Revenue I decided it was necessary to change the tone of the meeting.  Therefore, I focused upon attacking the process:
 
1.    First, using our cases as a prime example of what is wrong with the process I told them about the fact that “an agent for the State brought one of our appraisers to a hearing under the Department of Regulatory Agencies for overvaluation of our properties.”  Then, after the hearing officer expressly found “No evidence of overvaluation,” that same agent (Erin Toll) reporting what she claimed was the evidence provided to the Real Estate Commission (a part of the Department of Regulatory Agencies) quoted only the allegations brought against the appraiser, and never mentioned the actual findings of “No evidence of overvaluation.”  On that false basis they literally drove the appraiser out of business and I think out of Colorado.  Further, those same false allegations now appear in the attack upon our donations by the IRS and the Colorado Department of Revenue, and the actual hearing result: “No evidence of overvaluation,” appears to be forever lost.
 
2.    When heads began to nod in affirmation of what I was saying, I knew the strategy was working and that it was the right strategy.  Therefore I began to seriously attack the fact that the easement program was formulated in the first place by the State to entice people to participate; that it worked; and that if it was faulty it was the State’s fault and not ours.
 
3.    When the audience began interrupting me with applause it was clear the tone had changed.  The concept of letting the Revenue Department grind their way through these cases at their own speed and without clear guidelines is entirely unacceptable, abusive, and probably unconstitutional.
 
4.    Essentially, the rest of my presentation pretty much followed the Handout included below.
 
5.    Many other Landowner/Donors spoke, telling some really sad and financially devastating stories, but with the new tone clearly evident: We cannot live with this current approach.
 
Tax Credit Purchasers: Only a few purchasers came to the meeting, but those who spoke were highly effective.  One man is a gravel expert from the southeastern part of the state, and had some revealing tales to tell about his experience in trying to educate a government appraiser on the value of gravel land in Colorado.  It was obvious the government, both State and Federal, has no intention of valuing anything above zero or bad pasture land.
 
The Conclusion: At the end of the meeting, virtually every legislator present vowed that something has to change.  Wes McKinley outright stated, “The State designed the program, made the deal, and it is time to stick to it.”  He favors a full amnesty for all tax credits through 2007 with no conditions.  At least one legislator wanted some exceptions or some form of latitude in the prosecutorial process.  Most, however, seemed to favor full amnesty.
 
Wes McKinley asked me if I would help him rewrite the Bill.  Of course, I agreed, and of course I will seek the input of both Marsh and Walt in doing so.
 
A new Bill will take time, and will not likely help us unless our cases drag on longer than we expect.  (
Letter written by Stanley K. Mann; blog post by ©Sharon Cairns Mann.)

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    Hi! Welcome to this blog!   I'm a professional writer and award-winning author. I didn't really want to write this blog, but I also believe that the story of the huge conservation easement fiasco in Colorado has not yet been adequately told. So here it is!

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